The BRICS countries are now five after the relatively smaller South Africa was added to their rank. The original four are Brazil, Russia, India and China. They are coined BRICS because Goldman Sachs views them as countries at the same level of economic development and are the fastest growing countries in the globe.
The BRICS together currently account for more than a quarter of the world's land area, more than 40% of the world’s population and about 20% of global GDP compared to 19% for the United States, measured at purchasing power parity. These countries are deemed to be at a similar stage of newly advanced economic development. China’s GDP is expected to pass that of the U.S. in 2026. Goldman Sachs expects the four BRICS’ nominal total GDP (excluding South Africa) to exceed $128 trillion in 2050, compared to $66 trillion for the G7 countries together. It also expects the four BRICs (excluding South Africa) to account for 41% of the world's market capitalization by 2030. China might overtake the United States in equity market capitalization terms by 2030 and turn to be the largest equity market in the world. Politically, BRICS is a symbol of the shift in global economic power away from the developed G7 economies towards the developing world. By calling for a multipolar world order and a fairer world order, the BRICS have sought to increase their political cooperation to influence major trade accords and gain political concessions from the United States.
In a recent interview with CNBC, Mohammed El-Erian, the CEO of PIMCO, said “The QE2 splashed everywhere. It splashed into the commodities market, it splashed into other countries … Because we've so overinflated them, all this liquidity injection, they're having to tap the brakes and slow down." The BRICS in particular have said that they had been hurt by the American QE.
We put what El-Erian and others said to test through a rigorous time series model. My colleague Ramazan Sari from Middle East Technical University in Turkey and I built a time series model for each country that is based on economic, financial and political country risk ratings, domestic stock market, S&P 500 index, the oil price, QE1 and QE2. The results demonstrate that all the five BRICS are particularly sensitive to the financial risk ratings which include indicators such as debt service/ GDP, current account/GDP, International liquidity measured in terms months of imports cover and exchange rate stability. Political and economic risk ratings affected three of them and not all five. The economic risk ratings include indicators such as GDP per head, GDP growth and inflation. The QEs did not affect economic growth and GDP per capita for China and South Africa but afftected those of Brazil, Russia and India. Moreover, only the Chinese stock market shows sensitivity to the three country risk ratings, S&P 500 and oil price. China has a very high savings rate but very limited investment alternative to the stock market. But when it comes to the impact of the QE’s on the BRICS, the results are more mixed than for the three country risk ratings and own stock market.
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